Analysts LMC Automotive say May sales weaker than they appear

The European car market continued its recovery from the horrors of 2008-13 with a 5 per cent gain in sales in May compared with the same period last year. But the auto-industry analyst LMC Automotive is preaching caution, saying that the figures disguise an underlying weakness in the system.

“On the face of it, the German market picked up well in year-on-year terms, but an extra selling day and a weak May 2013 distort the year-on-year comparison,” said the report.

“In selling rate terms, May 2014 was weaker than previous months even though incentive activity remains high. However, economic fundamentals appear solid and should help the market comfortably exceed 3 million units for the full year.”

Those continuingly high incentives, where car makers offer especially sharp deals or discounts in order to entice car buyers, are a serious concern for the industry. Such practice has already led to Fiat boss Sergio Marchionne effectively saying that it’s impossible for Fiat to turn a profit on conventional models in Europe, and there are unsettling echoes of the huge discounts and incentives offered by US car makers in the years preceeding the financial crash and the bankruptcies of GM and Chrysler.

“West European car sales grew by 4.6 per cent last month, with the UK, Spain and Germany largely responsible for this expansion,” said LMC.

The region’s selling rate stood at 11.8 million units a year, a little weaker than the April result of 12.1 million, suggesting that there clearly remain headwinds to the market’s recovery. We continue to forecast that the west European car market will reach 12 million units for the 2014 full year as economic growth and consumer confidence continue to head in the right direction, but the road to recovery remains a bumpy one.”